HEALTHCARE: NEAR HIGHEST IN STUDY; LOCAL LABOR POOL STILL KEY

Focus on Device Makers’ Costs as Reform Tax Looms

No surprise: Orange County is one of the most expensive places to do business for medical device makers.

The county ranked third on manufacturing costs among 55 areas in the U.S. and overseas, on par with Silicon Valley and other industry centers, according to a study by Princeton, N.J.-based corporate relocation consultants The Boyd Co.

The study based its estimates on costs of labor, power, land and taxes, according to the survey. It used a hypothetical 325-worker production plant as a model.

Total annual operating costs for the study’s model in OC came in at $29.6 million. Boston came in at $28.6 million, with Minneapolis-St. Paul at $26.3 million.

Only San Jose-Palo Alto—which includes the Silicon Valley—and Los Angeles-Long Beach had higher costs than OC, according to the study. Silicon Valley totaled $30.7 million annually, with Los Angeles at $30.1 million.

The study showed San Diego, which is better known for drugs and biotechnology, with annual costs of $28.5 million.

Medical devices are a big part of the county’s and California’s economy—the industry employs some 88,000 workers in the state with an annual payroll of $5.5 billion, according to the report. The 29 largest medical device makers here combine to employ nearly 14,000 local workers, according to the Business Journal’s list for 2010.

The study came with a warning that companies could choose to relocate their medical device manufacturing to lower-cost areas because of regulatory and tax costs, including a pending 2.3% tax on revenue intended to raise $20 billion to help pay for healthcare reform.

“Tremendous Concern”

The tax “is a tremendous concern for the industry,” said John Boyd, president of The Boyd Co., “It’s another problem that California will need to deal with.”

Device makers have been working through trade groups, such as Washington, D.C.-based AdvaMed, on lobbying to repeal the tax, which is scheduled to start in 2013.

Meanwhile, some device makers based here are willing to live with the expense of local manufacturing.

“We want to keep our brand-new stuff close to home—the highest-value (devices) will stay in Orange County,” said Michael Mussallem, chief executive of Irvine heart valve maker Edwards Lifesciences Corp., during a meeting of the Orange County Business Council last year.

Edwards plans to keep more than 1,000 manufacturing jobs at its local headquarters even though it’s “expensive to do manufacturing” here, Mussallem said.

Edwards does have manufacturing plants in lower-cost areas such as Utah, Puerto Rico and the Dominican Republic.